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Here’s Why House Prices Aren’t Coming Down in a Devastated Economy

When fear and panic over the impacts of COVID-19 hit, the stock market took a tumble like nothing seen since the Great Depression.
In fact, the largest daily point loss in stock market history was on March 16th of 2020. The net change? Negative 2,997 points. Yet home prices haven’t budged. If anything, they’re going up.
With social distancing making it more difficult to schedule showings, one might expect demand to crater. And prices should be going with it. So what’s happening?

The Basics: Housing Supply and Demand

It comes down to basic supply and demand. According to the Wall Street Journal, “While buyer demand has softened and sales fell 8.5% in March, the supply of homes on the market is contracting even faster.”
Demand has indeed gone down, and it’s reflected in the sales numbers. But because fewer people are moving, there’s less supply on the market.
The net result is that demand has shrunk, but with fewer people exiting their homes during social distancing, there are fewer houses to choose from.
That means that local economies who have recently seen “seller’s markets” are still seeing seller’s markets.
It also means that anyone who purchased a home well ahead of the COVID-19 pandemic can still be confident that their house is retaining value.
But that’s all we know for right now. One question remains…
Are House Pricing Trends Going to Change From Here?
According to recent numbers from Zillow, there may be a change coming to the housing market. 
The report includes different forecasts, ranked by their overall optimism.
  • In the most optimistic forecast, there will be a 2-3% drop in housing prices in 2020, followed by a slow recovery in 2021.
  • The most pessimistic forecast sees home prices dropping by 3-4% from the first quarter of 2020 to the first quarter of 2021, with minimal recovery. In this scenario, prices would “remain depressed” throughout the year of 2021.
This data is driven by the change in sales and construction activity.
In other words, even though the supply of available houses on the market is going down, other factors could reduce overall prices.
The good news? Zillow largely views this as a passing phase.
Sentiment in buyers and sellers was very high, Zillow notes, before the pandemic hit. And once buyers and sellers are able to resume normal activity.
What Changing Economic Trends Mean for Your Mortgage Opportunities
The good news: real estate is holding on to its value even in one of the most unprecedented economic situations in history.
The bad news: things may be dicey for a while.
Fortunately, you’ll still have time to think about your own mortgage opportunities during the pandemic. Prices aren’t falling off a cliff. Changes in supply are off-setting changes in demand.
If anything, there may be mortgage opportunities worth exploring while you have more downtime.
And you can be more confident that if economic disaster strikes in the future, owning a home may be one of the best ways of storing value. 

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Chris Butaud, CPA
President | Designated Broker
Loan Originator MLO# 13157
Call/Text: 206-999-6941
NMLS #13157 | NMLS # 1902724

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